AmeriCredit Financial Services had to pay up for its first subprime auto loan securitization since a probe by the Department of Justice of its parent company's underwriting practices came to light.
Spreads on most tranches of the $1billion AmeriCredit Automobile Receivables Trust 2014-3 were wider than those of the issuer’s previous deal, AMCAR 2014-2, despite the fact that credit quality of loans backing the two deals is similar.
The latest deal AMCAR 2014-3, is one of the first to be issued since the Department of Justice’s subpoenaed both GM Financial (Americredit’s parent company) and Santander Consumer US over their subprime auto loan underwriting and securitization practices.
At the top of the capital stack, the impact of recent headlines was not so severe. The two classes of one-year senior notes, which aee rated 'Aaa' by Moody's Investors Service and 'AAA' by Standard & Poor's, priced just a few basis points wide of the previous deal, AMCAR 2014-2, which was completed in June. The spread on the fixed-rate one-year tranche was 32 basis points over the Eurodollar synthetic forward curve, five basis points outside comparable tranche of the June deal. The floating rate one-year notes priced at 32 basis points over one-month Libor.
And the 2.3-year tranche, which also carries triple-A ratings, ended up pricing five basis points inside initial guidance, which called for a range of 35 to 39 basis points. Instead, it priced at 32 basis points. That was one basis point inside the spread on the comparable tranche of AMCAR 2104-2, which has a weighted average life of 2.17 years and is also rated triple-A.
Further down the capital stack, the story was different. For example the class B notes, which are rated 'AA'/'Aa2' and have a weighted average life of 3 years, priced at 80 basis points over interpolated swaps, 15 basis points wider than the comparable tranche of the June deal.
And the class C notes, which are rated 'A'/'A2' and have a weighted average life of 3.59 years priced at 125 basis ponts over swaps, 25 basis points wider of the comparable tranche of the June deal.
Another difference between the two deals is that the latest one was not upsized. By comparison, AMCAR 2014-2 was increased in size to $1.4 billion from $1.17 billion originally.
Investors demanded higher yields despite the fact that the credit quality of the loans backing AMCAR 2014-3 is in line with that of the issuer's two prior deals of this year, according to Moody’s. The pool’s weighted average internal score of 245 is four points higher than the weighted average score for the 2014-2 pool and “on the high end” of recent AMCAR transactions.
The weighted average LTV of 110% is in the middle of the 109% to 111% range for recent AMCAR transactions.
The weighted average APR of 12.07% for the 2014-3 pool is lower than the weighted average APR for the 2014-2 transaction.
The collateral in the 2014-3 transaction has lower weighted average seasoning than the 2014-2 transaction. This is because the 2014-2 transaction includes a small amount of receivables that were called from 2010 securitizations at less than 10% pool factor.
BNP Paribas Securities, Credit Suisse Securities, Goldman, Sachs, and J.P. Morgan Securities are the lead underwriters.